New rival takes aim at AOL

Another Internet service provider today announced plans to attract disaffected members of America Online(AOL) following AOL's decision to raise rates 10 percent for unlimited access.

Erols Internet, a Springfield, Virginia-based ISP with more than 320,000 subscribers, will team up with Web-based online service Planet Direct for a month-long television advertising campaign to lure subscribers away from AOL.

Scheduled to air in eight major media markets on the East Coast, the ad will ask viewers, "Where would you be without America Online?"

Erols joins US Internet, a Minnesota-based ISP that launched an
"888-Leave-AOL" program for customers interested in switching from AOL, and EarthLink Network, which started a campaign called "Get out of AOL for free."

As the nation's largest access provider with more than 11 million members, AOL often is a target for marketing campaigns by its competition. Those campaigns have not had a noticeable effect on the company's growth, however, and Wall Street has rewarded news of the rate hike and company layoffs by driving AOL stock to record highs.

On February 9, AOL announced plans to raise its fee for
unlimited Net access by 10 percent to $21.95 per month from $19.95 per month, the standard price most ISPs charge. The increase is effective with the April billing cycle. Many ISPs and online services, including Prodigy, said they have no immediate plans to match the hike.

Erols Internet president and director of marketing Orhan Onaran said the partnership with Planet Direct and the ad campaign targeting AOL were planned before the online behemoth announced its price hike. But he said the company expected to reap the spoils of AOL subscriber discontent.

"Every year AOL does something to help out the ISPs," said Onaran. "Last year they went to unlimited access and had access problems and we saw a big jump in new subscribers. Potentially the same thing could happen now because of the price hike."

Erols offers a $19.95 month-to-month rate for unlimited access. Subscribers who pay for three years in advance pay $10.95 per month, and those who prepay for two years pay $12.50 per month. All prepaid options come with a pro-rated money-back guarantee.

Onaran also said the combined service offered by Erols and Planet Direct would give subscribers a choice between simple Internet access and a content-heavy service that resembles AOL. AOL subscribers do not have that choice, he noted.

"AOL offers a pipe into the Internet from their proprietary service," he said. "First you have to go through their Disneyland."

AOL does offer a reduced rate of $9.95 per month for users who want access to AOL content while using another ISP. It also allows people to pay $4.95 per month for three hours plus another $2.50 per hour, or $9.95 per month for five hours plus $2.95 per additional hour.

AOL spokesperson Ann Brackbill defended her company's service and said that even at the higher rate it is "the best deal in cyberspace." She also said it is too early to gauge the effect of the rate hike announcement.

"It hasn't gone into effect yet, so at this point we haven't seen much impact," she said. Brackbill declined to comment on the Erols ad campaign.

Forrester Research analyst Kate Delhagen said the Erols campaign was part of a steady trend of ISPs targeting what she called "AOL graduates," or people who found their way onto the Internet through AOL and are in the market for a faster and more sophisticated service.

"ISPs have had great success marketing to AOL graduates," Delhagen said. "And now the ISPs can say, 'Not only are we better, but we're cheaper.' It's one more reason for these AOL people to switch."

Delhagen predicted that AOL would weather the marketing raids on its subscribers as it continues to sign on customers new to the Internet, and as it moves toward a more advertising- and transaction-based revenue model. The company earns approximately 80 percent of its money through subscriptions, according to Delhagen, but the advertising and transaction revenues are growing and could eclipse subscription revenue within the next
five to eight years.

AOL's Web site also is growing swiftly, Delhagen noted.

RCN on Friday completed its acquisition of Erols and UltraNet
Communications. Erols sold for about $35 million in cash and $48.5 million in stock.